Eugene Grygo,
chief content editor,
FTF News
Government regulators, including Wall Street overseers, undercut their reform efforts by making rules that are so specific that people are focused on specifications and not on resolving problems. So says Philip K. Howard, a lawyer and author of the new book “The Rule of Nobody: Saving America from Dead Laws and Broken Government.”
While Howard is targeting the role of government in his book, he is no stranger to Wall Street and regulators.
A partner at the law firm Covington & Burling, he has tangled with the government via work for private equity giant KKR in “a wide range of issues and disputes,” according to his bio. He also assisted UBS’s merger and acquisition department, represented former Salomon CEO John Gutfreund in an SEC investigation, and took part in hostile takeover battles such as The Bank of New York’s takeover of Irving Trust. He has taken on many issues, including governance, regulatory disputes, securities litigation, and business transactions.
During a recent interview on the WNYC radio program, “The Brian Lehrer Show,” Howard used the Volcker Rule — the effort by regulators to stop firms from engaging in proprietary trading — as an example of regulatory excess.
At last count, the Volcker Rule consists of 963 pages and will require financial services firms to answer 438 questions each month to meet regulatory requirements. This will render the Volcker Rule as counterproductive, according to Howard’s radio interview.
“It will be nothing but loopholes,” Howard says. “The more words there are, the sooner the Wall Street Whiz Kids will figure out what words are not there, and they’ll figure out how to make trades in those 
interstices. … In the meantime, you’ve got literally scores of lawyers and inspectors having migraine headaches trying to interpret the 963 pages.”
A good example of the reach of regulators is when the U.S. Federal Reserve earlier this month gave banks two more years to divest collateralized loan obligations (CLOs) in response to the forthcoming Volcker Rule. Banks were given until July 21, 2017 to get rid of their problematic CLOs.
It could be argued that the Fed’s action would have been unnecessary had a set of guiding principles been in place and the bankers were allowed to make their own judgments.
Philip K. Howard, a lawyer and author
Beyond Wall Street reforms, regulators have weighed in on Obamacare and written a seven-foot-high, 2,700-page set of rules. “No business writes a 2,700-page statute,” Howard says. “It shackles people from ever actually adapting to real life. … We’re at the point where literally people can’t do anything.” In addition, the excessive regulation has failed to stem litigation, Howard says.
The problem is that the GOP and the Democrats agree on making regulations as detailed as possible in an effort to anticipate every scenario, which is a huge mistake, Howard says. “All this detail makes it impossible to accomplish the goals because life is too complicated,” he says.
The answer is to step back from the regulatory printing press and take Howard’s advice and set goals much like the Ten Commandments, the U.S. Constitution and the Golden Rule. If we had taken this approach at the onset of the reform efforts for Wall Street, we might be much better off our current state, which consists of a mountain of 14,000 pages of Dodd-Frank Act fine print, about half of the 243 DFA rules written with no end in sight to the rancor in creating them, and only the lawyers benefitting.
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